Central States Pension Fund announced that it needed to cut the benefits of more than 400,000 retirees in order to continue offering retirement benefits. Evidently, of those affected by the cuts, almost 300,000 are truckers.
Pension benefits have always been sacrosanct. These retirement benefits aren’t touched unless the situation gets way out of hand. The same scenario was quoted by the Central States Pension Fund as it announced that more than 400,000 former workers, who rely on the pension checks, will have to bear a substantial reduction in the amount they get every month.
The pension fund is one of the largest in the country, and, collectively, it plans to reduce the pension of 407,000 participants. However, the biggest group to be affected will be the teamster truckers. The fund said it was forced to take such drastic steps in order to save the pension fund from insolvency. Thomas C. Nyhan, executive director of the Central States Pension Fund, solemnly added that the decision was in the pipeline and had to be taken at some point.
“A realistic rescue plan is needed now. The longer we wait to act, the larger the benefit reductions will have to be.”
Since the decision has been made without postponement, pensions for Central States’ 407,000 participants would be cut by an average of about 23 percent, reported MSN. However, the fund has taken into consideration multiple factors to ensure the weak and the infirm aren’t left out in the cold. The agency announced that the disabled will be spared from the reductions. Moreover, the significantly older pensioners, above the age of 80, will face smaller reductions. Unfortunately, those employees who worked for defunct companies that regularly lagged behind on their pension funding obligations would be subjected to steeper reductions.
Why is the Central States Pension Fund in such dire straits? Current and former employees from over 1,500 companies rely on the fund to send them pension checks each month, reported CNN. Companies from diverse segments such as trucking, construction, and even Disneyland pay to keep the fund afloat and functioning. However, over the years, the scenario has been changing rapidly, owing to the revival of laws and the survival of many older pensioners.
Essentially, Central States Pension Fund pays out $3.46 for every dollar it collects. Hence each year, the fund pays out $2 billion more in benefits than what it collects through employer contributions. Apart from the rapidly increasing shortfall, the pension plan took a huge hit in membership when the trucking industry was deregulated in the 1980s. Additionally, the Great Recession took out a huge chunk from the investment portfolio.
Central States has confirmed that if the formula isn’t revised, and reductions aren’t brought into effect immediately, the fund will lose all its money and go into insolvency within the next 10 years.
“Without changes in its benefit formula, the pension plan is on course to be insolvent by 2026,” said Nyhan.
Central States Pension Fund is the first to submit a proposal for the reduction in pension benefits after the United States government passed a law last year. According to the law, companies can slash the benefits of current retirees “to address the fiscal distress being faced by some of the nation’s multi-employer pension plans.”
Many funds similar to Central States may run out of money sooner rather than later.
However, James P. Hoffa, general president of the International Brotherhood of Teamsters pointed out, “Pension fund participants and beneficiaries did not cause the problem of underfunding. They worked day in and day out to earn their pension credits. It is monstrously unfair that they will end up holding the short end of the stick.”
Is it fair for the pensioners to take a hit on the monthly pension checks?
[Image Credit | Bill Pugliano, Peter Macdiarmid, Mark Wilson / Getty Images]